The Commodity Futures Trading Commission (CFTC) has taken its first enforcement action to protect whistleblower communications to the CFTC. On June 17, the CFTC announced a $55 million fine against global commodities merchant Trafigura Trading LLC to settle multiple charges, including charges of impeding whistleblower communications to the CFTC.
The CFTC brought this first-of-its-kind charge for the CFTC under Regulation 165.19(b) of the CFTC’s Whistleblower Rules. The Regulation states that a company shall not “take any action to impede an individual from communicating directly with the Commission’s staff about a possible violation of the Commodity Exchange Act, including by enforcing, or threatening to enforce, a confidentiality agreement or pre-dispute arbitration agreement with respect to such communications.”
Although Regulation 165.19(b) has existed for over seven years, the Commission’s action against Trafigura Trading LLC is the first enforcement action under this Regulation. The Commission’s Order determined that Trafigura breached Regulation 165.19(b) by mandating employees to sign agreements with extensive non-disclosure clauses that barred the disclosure of Trafigura’s confidential information to third parties. The CFTC specifically objected to the absence of “carve-out language” in these agreements, which would have explicitly allowed the sharing of information with the Commission or law enforcement.
In response to the CFTC’s action against Trafigura, Director of the Whistleblower Office Brian Young noted that the action “puts the market on notice that the CFTC will not tolerate contractual arrangements that could impede communication by potential witnesses.” Christopher Ehrman, former Director of the CFTC’s Whistleblower Office and partner at Phillips & Cohen, also stated “the enforcement action shows that the Division of Enforcement will not hesitate to enforce this rule and sanction persons or entities who violate it.”
While the CFTC enforcement action against Trafigura breaks new ground for the CFTC in taking action to enforce regulations that protect whistleblowers, the Securities and Exchange Commission (SEC) has for years enforced a similar rule under its whistleblower program. SEC Rule 21F-17 prohibits any action that could impede an individual from communicating directly with the SEC about a possible securities law. This includes efforts to:
- require employees to waive their right to monetary awards from the SEC;
- mandate that employees report internally before contacting the SEC; or
- impose financial penalties on employees for participating in whistleblowing activities.
The SEC has taken numerous actions against companies for including restrictive language in separation agreements that could deter whistleblowing. In September 2023 alone, the SEC settled three enforcement actions for Rule 21F-17 violations, including actions similar to the CFTC’s against Trafigura where non-disclosure agreements did not include carve-outs for potential whistleblowers.
That the SEC and CFTC have now both taken enforcement actions against companies who hinder whistleblower communications to the agencies sends a strong message both to companies and to prospective whistleblowers. Through their actions, both agencies have demonstrated that protecting whistleblowers is vital to the success of their programs.
Whistleblowers can report violations of the SEC’s Rule 21F-17 or the CFTC’s Regulation 165.19(b) to the SEC and CFTC through those respective agencies’ whistleblower programs. If the SEC or CFTC investigates allegations and recoups over $1 million in sanctions in an enforcement action, the whistleblower may receive a percentage of the recovery as an award.
For a free, confidential review of your matter by experienced SEC or CFTC whistleblower lawyers, contact Phillips & Cohen. The firm’s partners include the former first head of the SEC Office of the Whistleblower, the former director of the CFTC’s Whistleblower Office and numerous attorneys with decades of experience representing whistleblowers.
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